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eBay Auctions: Going, Going...


The thrill of the hunt is fading for buyers, and longtime auctioneers aren't happy with higher fees

Dave Dribin, a 34-year-old software engineer in Chicago, used to like bidding on eBay. He scouted out vintage and used goods he could scoop up cheap. But not anymore. Dribin no longer wants to waste hours tracking an auction, especially if he ends up losing out on something he wants. Instead, he just buys things retail when he shops online. "If I really want something, I'm not going to goof around [with auctions] for a small savings," he says.

Auctions were once a pillar of Internet commerce. People didn't simply shop on eBay. They hunted, fought, sweated, and triumphed. But as the business of buying and selling online has matured, the thrill of the chase has faded for shoppers like Dribin. Increasingly, people just want the convenience of buying stuff online quickly at a set price.

As consumers' interest in auctions has cooled, eBay, far and away the largest online auctioneer, has paid the price. Revenue and profit growth have slowed. Its stock has tumbled from a peak last year of more than 40 to 29. It may have been even worse, but the company's PayPal (EBAY) payments unit has been flourishing. In recent months, new Chief Executive Officer John Donahoe has moved the company toward a more traditional online retail business. Donahoe declined to comment for this story, but in an April interview he said eBay is simply trying to adjust to changing consumer tastes. "We are going to let our buyers choose," he said.

Shoppers are making their preferences plenty clear. While eBay's auction business grew at strong double-digit rates for years, growth slid to 6% in the first quarter of this year. In contrast, eBay's fixed-price business increased 22% in the first quarter.

The shift means profound changes for eBay. If current growth trends continue, this could be the first year in which the company reaps more revenue from fixed-price sales than from auctions. (In the first quarter, 58% of eBay's sales came from auctions, while 42% came from fixed-price sales.) That would make eBay less of a unique online shopping site and more of a direct competitor to Amazon.com.

Why are consumers cooling on auctions? People are busy, of course. It's also tougher to find bargains at auction these days, because anyone can find the market price for almost anything with a quick Google (GOOG) search. One development that's recently made auctions vexing for people like Dribin is a practice known as "sniping." That's when someone darts into an auction just before it closes and tops the highest bid. With no chance to counterbid, less experienced bidders lose out to snipers, often after days of following an auction. The practice has grown more common lately because of "bidding bots," automated software programs with names like "Bidnapper" and "Powersnipe," that place bids seconds before an auction ends. "Sniping is the most frustrating thing," says Dribin.

Donahoe may not be able to stop sniping. But since assuming the helm in March, he has taken steps to emphasize fixed-price items. In May, for example, eBay struck a partnership with Buy.com to sell a large swath of the online big box retailer's electronics, luggage, books, and other items for set prices. Perhaps most significant, eBay changed the fees it charges retailers who sell on its site, reducing the charges for companies that sell fixed-price goods and increasing fees for many that use auctions.

SOLD OUT

Donahoe's changes have created a new problem: They've infuriated some of eBay's longest-tenured sellers. Take Bruce Hershenson, a 55-year-old from West Plains, Mo., who sold vintage movie posters on the site for nearly a decade. When he first heard of the fee hike at a meeting with eBay management in Washington, D.C., he stood up and complained. "I said, I am exactly the kind of seller who built eBay and brings people to eBay on a daily basis. And it seems to me your changes are hitting me hardest.'"

Under eBay's old fee structure, Hershenson paid about $2 in fees to eBay when he sold a $40 poster at auction. With the new fees, he would pay $2.87. Those pennies add up. Hershenson estimates his fees would increase from $120,000 a year to $180,000 under the new fee structure.

But eBay won't be getting that money from Hershenson. He hung up his eBay gavel for good earlier this month, and he's selling posters from his own site, eMoviePoster.com, instead. Most of his regular customers have already followed him, he says. He plans to attract others with advertising purchased with the savings from not paying eBay's fees.

Most eBay sellers can't set up their own site or leave for a rival site, however. With nearly 90 million active users—many times the number on alternative sites—eBay dominates the business. Sellers who stay aren't suffering in silence. They've filled message boards with calls to fire Donahoe and organized seller boycotts, including one for a week in May. Maggie Dressler, an eBay seller who has auctioned antique trains and toys on the site since 2001, says the company's treatment of auctioneers is "deplorable."

Auctions will always have a place on the site, says eBay. "Auctions are incredible fun and still the best way to get the right value on many products," says Lorrie Norrington, president for global marketplace operations at eBay. "[However,] the format buyers choose is not as important as the experience they have." The company is expected to make some site revisions to placate auctioneers. It's likely to redesign certain Web pages to give more prominence to auctions, particularly in categories with unique merchandise such as collectible stamps and coins.

Hershenson predicts auctions on eBay will undergo more fundamental changes in the years ahead. He thinks that as more fixed-price goods show up on the site, sellers will have a hard time getting the attention of enough bidders for a viable auction. Auctioneers will eventually close up shop. "Their changes will have the result of ending auctions as we know it on eBay," he says.

Links

Bidding Theory

In his book, Snipers, Shills, and Sharks: eBay & Human Behavior, Princeton computer science professor Ken Steiglitz analyzes the strategies that the savviest eBay buyers use to grab deals. He also examines how some of those strategies—such as sniping—lead to inefficiencies in the auction market.


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